Public Companies Update – July One-Minute Reads

SEC publishes spring 2022 agenda

On June 22, the Securities and Exchange Commission published its Regulatory Flexibility Agenda for spring 2022, which is jampacked (as expected) with pending and new rulemakings. Some notable rules on the agenda are listed in the table below.

For more information on the rulemaking agenda, refer to this PubCo blog post.

SEC insider trading charge highlights risks of remote work

On June 29, the SEC announced insider trading charges against an individual for illegally trading in a company’s securities in advance of an announcement of a potential acquisition of the company. According to the complaint, the defendant’s domestic partner was an employee of the target company and the defendant and employee worked out of their shared home, where the employee allegedly discussed the potential acquisition in the defendant’s presence. Using this information, the defendant purchased call options one day before the acquisition was announced, resulting in unlawful profits after the stock price rose. This case serves as a stark example of the risks posed by remote working environments and is an important reminder to use caution when discussing – or otherwise making available – any material nonpublic information, even when at home and around trusted people.

SEC updates electronic filing requirements

On June 3, the SEC announced that it had adopted amendments to require certain forms that currently may be submitted on paper to be filed electronically through its Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system, as well as mandating the use of Inline XBRL structured data language for submitting financial information required in Form 11-K. Key documents that now require electronic filing include the “glossy” annual report, Form 144 and Form 6-K, with the new rules also permitting electronic submission of certain foreign language documents. These changes will become effective 30 days after publication in the Federal Register and include specific transition periods for the documents covered by the amendments. For more information, refer to this SEC fact sheet and this PubCo blog post.

Georgeson releases early proxy season review

Georgeson recently published its 2022 early proxy season review summarizing submission and voting trends for environmental and social shareholder proposals at Russell 3000 companies during the 2022 proxy season. Key takeaways from the report, which reflects proposals through May 16, include:

• There were 924 shareholder proposals submitted, significantly surpassing the record-breaking number of submissions in the 2021 season.
• While environmental, social and governance (ESG) shareholder proposals increased more than 10% year over year, shareholder support for environmental and social (E&S) proposals declined significantly – from 35% to 20% of environmental proposals this season and from 18% to 9% of social proposals this season.
• Of the 71 shareholder proposals including greenhouse gas reduction strategies or targets, 56 requested inclusion of Scope 3 emissions; only four of the 56 proposals passed, with eight failing and 31 being withdrawn (the results for the remainder have yet to be revealed).
• While the number of shareholder proposals increased, the number of governance proposals declined 10% year over year.

Vanguard speaks on ‘say on climate’

In May, Vanguard published its current perspective on “say on climate” proposals, which discourages companies from holding “say on climate” votes, given the substance of the proposals and the lack of established standards. Vanguard did, however, recognize the value of “say on climate” votes at companies where climate change-related risks are material, as a vote could help inform investor perspectives. If a company does choose to hold a vote, Vanguard expects the company to provide clear disclosure of the rationale, detail the oversight mechanisms and implications of the vote, and produce robust reporting in line with the Task Force on Climate-related Financial Disclosures (TCFD) framework.

The Conference Board publishes report on diversity and ESG expertise

On May 19, The Conference Board published Board Composition: Diversity, Experience, and Effectiveness, a report exploring current trends in ESG expertise and board diversity – and their implications on board composition, size and education. The report found that the percentage of directors with experience in business strategy decreased, even though operational and financial experience increased. The report cautioned that while companies “may be attracting directors with knowledge in specific areas … boards should not sacrifice business strategy experience to achieve functional expertise.”

Additional key takeaways from the report include:

• The percentage of directors with international experience decreased – in the S&P 500 from 19.6% in 2018 to 14.4% in 2021 and in the Russell 3000 from 10% in 2018 to 8.1% in 2021.
• Companies are increasingly using in-house and outside resources for director education; the usage of both in the S&P 500 grew from 25.3% in 2018 to 29.1% in 2021 and in the Russell 3000 from 11.8% in 2018 to 16.4% in 2021.
• While board diversity disclosures have increased significantly, that increase “has not been matched by increases in racial/ethnic diversity” of the boards themselves – disclosures in the S&P 500 grew from 11.4% in 2018 to 73.3% in 2021.
• Board sizes are growing, which may be attributable to company efforts to increase diversity and specialty expertise on their boards.
• The number of women on boards continues to grow, with women now holding 30% of board seats in the S&P 500 and 24% of board seats in the Russell 3000.

For more information about the report, refer to this PubCo blog post.

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